2010-05-05

Yuan weakens versus U.S. dollar

I mentioned some of the weak yuan arguments before, but now we're seeing a weaker yuan in action.
Yuan Forwards Fall on Concern Europe’s Woes to Delay End to Peg
The yuan itself isn't falling, just the non-deliverable forward contracts that are traded. They had been bid higher on the expectation of currency revaluation.

At the start of the year, I expected China to let the rising U.S. dollar do its work for it, rather than appreciating the currency on top of the U.S. dollar. I believed China would take many steps before using the currency option to fight inflation. Now, there's a chance that the solution for European Central Bank is to follow in the Federal Reserve's footsteps and print money, in which case Chinese exporters will suffer greatly as the euro tumbles towards parity. There is a case for revaluation in that China wants to gradually move towards a floating currency, but I do not believe there will be any change in the near-term.

Of course, the yuan might go down


Revaluing the Chinese yuan

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